Brazilian issuers seen lagging LatAm debt revival
Samy Podlubny UBS BB
Carol Carquejeiro/Valor
Brazilian companies are expected to play a smaller role in the revival of international debt issuance following the Northern Hemisphere summer break, a period that traditionally opens one of the strongest fundraising windows of the year.
While banks have identified companies that could tap the market in September and October, bankers and investors expect Brazilian issuance to trail the pace anticipated elsewhere in Latin America.
Mercado Libre, the Argentina-founded e-commerce and fintech company that generates most of its revenue in Brazil, raised $1 billion through 10-year bonds last Wednesday (Sept. 9), shortly after the U.S. holiday, in one of the region’s first deals of the season.
Private credit stress tests market infrastructure
Banks expect sovereign issuers to dominate the issuance window that opened after Labor Day last week. Peru, Chile, Mexico and Colombia are among the countries being watched for potential deals. Brazil’s National Treasury is also expected by some market participants to come to market, although no large transaction is anticipated.
“We think sovereigns will come first,” said Samy Podlubny, head of fixed income at UBS BB, the investment-banking joint venture between UBS and Banco do Brasil.
Podlubny said countries are likely to move quickly as markets brace for the possibility of another increase in U.S. interest rates.
Corporate pipeline
The picture is different for corporate borrowers. Itaú BBA, the investment-banking arm of Itaú Unibanco, has identified seven to ten potential Brazilian transactions for September and October.
The companies involved are in a position to prepare an issue relatively quickly and will decide whether to proceed depending on market conditions.
“In most of these cases, they are companies that can get ready relatively quickly. If the market is receptive, they will do it,” said Murilo Kuhl, head of international fixed income at Itaú BBA.
Brazilian companies have already raised about $22 billion in overseas debt markets this year. Even so, Itaú BBA does not expect Brazil to match the intensity of issuance anticipated across Latin America over the next few weeks.
Global markets entered September with appetite for corporate debt still intact, but with one factor making issuance more difficult: sharp volatility in U.S. Treasuries, which has pushed up dollar borrowing costs.
“The market abroad is good, but Treasuries are very volatile,” Kuhl said.
Felipe Thut, head of fixed income and structured products at Bradesco BBI, the investment-banking unit of Banco Bradesco, said the volume of deals announced by foreign companies in the opening days of the season shows how much Treasury moves are influencing issuers’ decisions.
“Looking at U.S. investment-grade companies, issuance on the first day after Labor Day reached $38 billion. That is a strong number, but it is the lowest seen since 2020 for this specific time of year,” he said.
For some companies, rising Treasury yields have made issuance terms less attractive. For others, the equation is different. Companies that borrow abroad and then swap their dollar debt into reais are currently benefiting from a more favorable combination of credit spreads, the foreign-exchange coupon and U.S. interest rates.
Pre-election window
“There are some macro issues that are a concern, but the market is open,” said Claudio Matos, head of capital markets at BNP Paribas.
Matos sees room for Brazilian transactions ahead of the elections.
“There are some macro issues that are a concern, such as U.S. interest rates, but the market is open. Maybe we won’t see huge volumes, but we will see deals,” he said.
Credit caution
Beyond interest-rate volatility, Brazilian corporate credit is facing a challenge of its own.
Recent problems at large issuers including Raízen, a sugar-and-ethanol producer and fuel distributor; Ambipar, an environmental-services company; and Braskem, a petrochemical producer, have made investors more cautious.
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The deterioration extends beyond companies that have entered restructuring processes. In the secondary market, bonds issued by other highly leveraged Brazilian companies have also performed poorly, widening the gap between borrowers that can still access the market on attractive terms and those for which new debt has become prohibitively expensive.
Leonardo Ono, from asset manager Legacy Capital, said less straightforward Brazilian credit stories have been under pressure in the secondary market and sees little room for new issuers.
Podlubny also sees a degree of “unease” surrounding Brazilian corporate credit following the recent problems involving large companies.
UBS BB is monitoring infrastructure and energy transactions across Latin America, but none of them are currently Brazilian. Podlubny did not rule out appearances by large Brazilian companies after the first wave of sovereign issuance, although he said the bank does not currently have any corporate deals under mandate.
Thut sees some “skepticism” toward Brazilian issuers, but said it is more closely tied to corporate-governance concerns than to the elections.
Bank funding
Brazilian banks are also expected to have a smaller presence in the international market this season.
Cautious bets on fixed income mark pre‑election period
Ono said financial institutions have increasingly turned to domestic Financial Bills for funding, reducing their need to raise money overseas.
Paulo Bokel, head of credit at asset manager Absolute Investments, said Brazilian companies continue to look to overseas debt issuance as a way to diversify their funding sources.
Many companies have already tapped the domestic market, he said, and now need to seek financing from other pools of capital.
